By Nick Hurston
A commercial insurance carrier’s appeal of an order requiring it to defend a lawsuit was dismissed after the 4th U.S. Circuit Court of Appeals found that it lacked jurisdiction because the underlying action was resolved by an intervening settlement.
The insurer argued that the District Court’s order to defend was effectively an injunction, but Senior Circuit Judge Barbara Milano Keenan said there was no longer any duty to defend because of the settlement and damages were available for any past breach.
“[G]iven the resolution of the underlying action, the district court’s award of partial summary judgment in favor of the defendants on [plaintiff’s] duty to defend is not appealable under Section 1292(a)(1),” she explained. “We are able to consider this question along with the related issue of damages on appeal of a final judgment, furthering our goal of avoiding ‘[p]iecemeal’ appeals in the absence of any immediate or pressing consequence.”
Keenan was joined by Circuit Judges Allison Jones Rushing and DeAndrea Gist Benjamin in Selective Insurance Co. of America v. Westfield Insurance Co.
Weaver Cooke Construction contracted with New Bern Riverfront Development to serve as general contractor for a condominium complex to be built in North Carolina. Weaver Cooke contracted with various subcontractors, including DD Plumbing.
Weaver Cooke was a named insured under two commercial liability policies, one issued by Westfield Insurance and the other by Zurich American. DD Plumbing was a named insured and Weaver Cooke was an additional insured under a selective insurance policy.
Selective’s policy required it to defend the insured against any lawsuit seeking damages for bodily injury or property damage.
After filing for bankruptcy, New Bern initiated an adversary proceeding against Weaver Cooke and others for defective construction. Selective didn’t comply with a request by Weaver Cooke and Westfield that it defend Weaver Cooke as an additional insured.
Duty to defend
Westfield and Zurich each sought a declaration in the Eastern District of North Carolina that Selective had a duty to defend Weaver Cooke and demanded “equitable subrogation/contribution” against Selective for reimbursement of their costs in defending Weaver Cooke.
Weaver Cooke also filed a counterclaim against Selective for unfair trade practices, as well as a right to indemnification. The District Court stayed the indemnification claim pending resolution of the underlying factual issues.
The parties sought summary judgment after completing discovery on the duty to defend and unfair trade practices claims. Finding that DD Plumbing’s work was implicated as the cause of water damage, the court concluded that was property damage under Selective’s policy.
Having found that Selective had a duty to defend Weaver Cooke as an additional insured, the court awarded partial summary judgment to Westfield, Zurich and Weaver Cooke. The court refused to grant summary judgment for unfair trade practices due to factual disputes.
The court stayed the issues of duty to defend damages and the unfair trade practices until the underlying case against DD Plumbing was resolved. Neither party moved to dissolve the court’s order to administratively close the case. Selective appealed.
Later, the Bankruptcy Court approved a settlement that resolved the parties’ defective construction claims and issued a final decree that closed the underlying action.
Selective asserted that the District Court erred in concluding that it owed a duty to defend because the allegations in the underlying action involved only “non-covered economic damages” and suggested only a need for “further investigation” regarding DD Plumbing’s liability.
Keenan agreed with Selective that the District Court hadn’t entered a final judgment that would allow review of this appeal under 28 U.S.C. § 1291, which permits appeals of interlocutory orders granting injunctions.
However, the judge disagreed that the court had jurisdiction and noted that issues of damages, as well as the unfair trade practices claims and indemnification claim, were still pending in the district court.
Selective cited Ramara Inc. v. Westfield Inc., a 2016 opinion of the 3rd U.S. Circuit Court of Appeals, to argue that the District Court’s partial award of summary judgment against it effectively was “an injunction requiring [Selective] to provide a defense to Weaver Cooke in the underlying action.”
Keenan was unconvinced.
“Even assuming, without deciding, that at the time of its entry, the district court’s order was in the nature of an injunction in that the order required Selective to take prospective action in the underlying litigation, because the underlying action now has been resolved, there is no possible present or prospective requirement for Selective to act by providing a defense to Weaver Cooke,” she wrote.
Here, the judge said that any breach by Selective’s failure to defend Weaver Cooke could be remedied at this juncture by an award of damages. Thus, the District Court’s holding that Selective had a duty to defend didn’t presently produce any immediate or pressing event.
Keenan wasn’t persuaded by Selective’s reliance on Ramara where the 3rd Circuit explained how the lower court’s holding that the insurer had a duty to defend a party “granted forward-looking,” “prospective” relief, which was immediately appealable.
She said this appeal didn’t present an issue requiring consideration separate from the pending issues in this case. The court could review Selective’s duty to defend after final judgment without ensuing consequence and therefore § 1292(a)(1) didn’t confer jurisdiction.
“While the relief granted in the district court’s order originally may have been prospective in nature, the resolution of the underlying action has eliminated from that order any forward-looking mandate,” Keenan pointed out in distinguishing the instant matter.
She concluded that the District Court’s order here lacked the character of an injunction and didn’t require the court to consider any question separate from issues that may be appealed after entry of a final judgment in the District Court.